Deluxe Fender uses a standard cost system and provide the following information: 1(Click the icon to view the information.) Deluxe Fender allocates manufacturing overhead to production based on standard direct labor hours. Deluxe Fender reported the following actual results for 2024: actual number of fenders produced, 20,000; actual variable overhead, $5,250; actual fixed overhead, $35,000; actual direct labor hours, 480. Read the requirements2. Requirement 1. Compute the overhead variances for the year: variable overhead cost variance, variable overhead efficiency variance, fixed overhead cost variance, and fixed overhead volume variance. Begin with the variable overhead cost and efficiency variances. Select the required formulas, compute the variable overhead cost and efficiency variances, and identify whether each variance is favorable (F) or unfavorable (U).(You may need to simply the formula based on the data provided. Abbreviations used: AC = actual cost; AQ = actual quantity; FOH = fixed overhead; SC = standard cost; SQ = standard quantity; VOH = variable overhead.) Formula Variance VOH cost variance = (1) = (2) VOH efficiency variance = (3) = (4) Now compute the fixed overhead cost and volume variances. Select the required formulas, compute the fixed overhead cost and volume variances, and identify whether each variance is favorable (F) or unfavorable (U).(Abbreviations used: AC = actual cost; AQ = actual quantity; FOH = fixed overhead; SC = standard cost; SQ = standard quantity.) Formula Variance FOH cost variance = (5) = (6) FOH volume variance = (7) = (8) Requirement 2. Explain why the variances are favorable or unfavorable.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Deluxe

Fender uses a standard cost system and provide the following information:

1(Click

the icon to view the information.)

Deluxe

Fender allocates manufacturing overhead to production based on standard direct labor hours.

Deluxe

Fender reported the following actual results for

2024:

actual number of fenders produced,

20,000;

actual variable overhead,

$5,250;

actual fixed overhead,

$35,000;

actual direct labor hours,

480.

Read the

requirements2.

Requirement 1. Compute the overhead variances for the year: variable overhead cost variance, variable overhead efficiency variance, fixed overhead cost variance, and fixed overhead volume variance.

Begin with the variable overhead cost and efficiency variances. Select the required formulas, compute the variable overhead cost and efficiency variances, and identify whether each variance is favorable (F) or unfavorable (U).(You may need to simply the formula based on the data provided. Abbreviations used: AC = actual cost; AQ = actual quantity; FOH = fixed overhead; SC = standard cost; SQ = standard quantity; VOH = variable overhead.)

		Formula		Variance
VOH cost variance	=	(1)	=		(2)
VOH efficiency variance	=	(3)	=		(4)

Now compute the fixed overhead cost and volume variances. Select the required formulas, compute the fixed overhead cost and volume variances, and identify whether each variance is favorable (F) or unfavorable (U).(Abbreviations used: AC = actual cost; AQ = actual quantity; FOH = fixed overhead; SC = standard cost; SQ = standard quantity.)

		Formula		Variance
FOH cost variance	=	(5)	=		(6)
FOH volume variance	=	(7)	=		(8)

Requirement 2. Explain why the variances are favorable or unfavorable.

The variable overhead cost variance is

(9)

because management spent

(10)

than budgeted for the actual production.

The variable overhead efficiency variance is

(11)

because management used

(12)

direct labor hours than standard and variable overhead is applied (incurred) based on direct labor.

The fixed overhead cost variance is

(13)

because management spent

(14)

than the amount budgeted for fixed overhead.

The fixed overhead volume variance is

(15)

because management allocated

(16)

fixed overhead to jobs than was budgeted.

1: Data Table

Static budget variable overhead	$3,640
Static budget fixed overhead	$29,120
Static budget direct labor hours	728 hours
Static budget number of units	26,000 units
Standard direct labor hours	0.028 hours per fender

2: Requirements

1.	Compute the overhead variances for the year: variable overhead cost variance, variable overhead efficiency variance, fixed overhead cost variance, and fixed overhead volume variance.
2.	Explain why the variances are favorable or unfavorable.

(1)

(AC - SC) × AQ

(AC - SC) × SQ

(AQ - SQ) × AC

(AQ - SQ) × SC

Actual FOH - Allocated FOH

Actual FOH - Budgeted FOH

Bugeted FOH - Allocated FOH

(2)

(3)

(AC - SC) × AQ

(AC - SC) × SQ

(AQ - SQ) × AC

(AQ - SQ) × SC

Actual FOH - Allocated FOH

Actual FOH - Budgeted FOH

Bugeted FOH - Allocated FOH

(4)

(5)

(AC - SC) × AQ

(AC - SC) × SQ

(AQ - SQ) × AC

(AQ - SQ) × SC

Actual FOH - Allocated FOH

Actual FOH - Budgeted FOH

Bugeted FOH - Allocated FOH

(6)

(7)

(AC - SC) × AQ

(AC - SC) × SQ

(AQ - SQ) × AC

(AQ - SQ) × SC

Actual FOH - Allocated FOH

Actual FOH - Budgeted FOH

Bugeted FOH - Allocated FOH

(8)

(9)

unfavorable

favorable

(10)

less

(11)

favorable

unfavorable

(12)

fewer

(13)

unfavorable

favorable

(14)

less

(15)

unfavorable

favorable

(16)

less

Definition Definition System of assigning an estimated cost to the product (instead of the actual cost) so that the product cost can be determined well in advance and the pricing of the product can be done on time. Since the actual cost cannot be predicted at the initial stage of the production process, the estimated cost is recorded in the books. Any deviation of the estimated cost of the actual cost is adjusted in the books at the end of the period.

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